Beasts behaving badly

When the 85-year-old firm Bear Stearns crashed and burned in little more than a week in March 2008, it became a harbinger of the credit crisis that snowballed later in the year and led to the global financial meltdown. Bear Stearns, the nation's fifth-largest investment bank, had survived every crisis of the 20th century, from the Great Depression to the market dive of 1987, without a single losing quarter.

As William D. Cohan makes clear in his engrossing new book, "House of Cards," Bear Stearns is also a microcosm of what went wrong on Wall Street, from bad business decisions to a lack of oversight to greedy, arrogant CEOs. It's also a parable about how the second Gilded Age came slamming to a fast and furious end.

Cohan, a former investment banker and the author of "The Last Tycoons," a 2007 book about Lazard Freres & Co., gives us in these pages a chilling, almost minute-by-minute account of the 10 vertigo-inducing days that one year ago revealed Bear Stearns to be a house of cards. .

He shows how quickly rumors about poor liquidity led to a run on the bank, and how fears that a Bear Stearns bankruptcy could wreak fiscal havoc around the world led the Federal Reserve to approve a $30 billion credit line to help JPMorgan Chase acquire the ailing firm for a bargain price.

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Cohan deftly explicates the reasons that Bear Stearns was in peril in the first place. Notable was the failure of two of its hedge funds, which were stuffed full of subprime mortgages. So was the irresponsibility of many of its senior officers, who didn't oversee the firm's investments wisely or diversify its revenue.

Cohan gives us a glimpse of the fall of Lehman Bros. several months later, which many Wall Street observers regarded as the trigger of the current financial crisis, and the Fed's decision not to give it a bailout or work out a Bear Stearns-like solution.

Like Michael Lewis' "Liar's Poker" and Bryan Burrough and John Helyar's "Barbarians at the Gate," this volume turns complex Wall Street maneuverings into high drama that is gripping and almost immediately comprehensible to the lay reader. Cohan writes with an insider's knowledge of the workings of Wall Street, a reporter's investigative instincts and a natural storyteller's narrative command.

Two things stand out in Cohan's narrative. The first is just how worried Wall Street analysts and the federal government were about the liquidity crisis and the possibility of a dominolike collapse in world financial markets in March 2008. Six months later things would really began to slide out of control in the fall. Debate rages about just how many warning signs there were in 2007, 2006 and even 2005 of the housing bubble and the subprime meltdown.

The second thing that stands out is the idea that in thisglobalized, interconnected world, rumors fly around the planet by television and the Internet, automated computer programs can magnify or speed up trends and bad decisions made by a handful of powerful people can ricochet through a company or industry.

As many reporters observed, Bear Stearns was known for its sharp-elbowed, opportunistic culture; even in a notoriously aggressive business, it had a distinctly results-oriented approach. Cohan creates vivid portraits of the personalities who came to define Bear Stearns:

the brilliant, authoritarian Cy Lewis, who pushed the firm into the limelight; his successor, Ace Greenberg, who put his mark on the firm by looking for "people with PSD degrees," that is, non-MBAs who were poor and smart with a deep desire to become rich.

Jimmy Cayne, a championship bridge player and former bond salesman whostepped down as CEO in January 2008 after the firm posted its first quarterly loss ever. A Wall Street Journal article had questioned his laissez-faire management style and depicted him as a fanatical bridge player and pot smoker, a charge he has denied.

Cohan writes that Cayne "had only a vague understanding" of the exotic securities that would imperil the firm's liquidity, and that he alienated (and eventually forced out) Warren Spector, the man most familiar with these financial instruments. In any case, he writes, the firm exerted little oversight of the hedge funds run by Ralph Cioffi, who had heavily loaded them with toxic investments in subprime mortgages despite assurances to the contrary to investors. Cohan also notes that Cayne left to play in a bridge tournament during the crucial period in the summer of 2007 when the firm closed its failing hedge funds, and that in the midst of the March 2008 crisis he was again out of town at a bridge tournament.

Bear Stearns, whose stock had traded as high as $170 in 2007, ended up selling itself to JPMorgan Chase for less than the value of its office building. Cohan's account of its death spiral makes for riveting, edge-of-the-seat reading. It also stands as a chilling cautionary tale of how greed, hubris and high-risk gambling wrecked one company and turned it into a metaphor for what the author calls "the near-collapse of capitalism as we have known it."